Healthcare Costs Top $20K Per Family

The national annual cost of medical care for a typical family of four with PPO coverage has edged up over $20,000 for the first time, according to the actuarial and consulting firm, Milliman.

The 2012 Milliman Medical Index estimates the annual cost at $20,728. That's a record $1,335 increase in the total cost of care compared with 2011, and the first time the cost has notched above the $20K mark since Milliman started reporting on these costs twelve years ago.

Through a combination of copayments, deductions, and premiums, the prototypical family of four will be responsible for a record share—42%—of its medical costs.

A combination of factors is driving the increase, including the comparative lack of control insurers exert on outpatients costs, a slowdown in hospital bed utilization, and the cost of technology in patient care, explains Chris Girod, principal and consulting actuary in Milliman's San Diego office and a co-author of the report.

The good news? The pace of the increase is slowing. The 6.9% increase in total costs is the lowest annual rate of increase in more than a decade.

The MMI is comprised of five components: inpatient facility care, outpatient facility care, physician services, pharmacy, and miscellaneous other.  View slideshow.

Among the MMI findings:

• Outpatient facility costs posted its first single digit increase, 8.6%, in four years, but for the fifth year that increase outpaced all the other MMI components.
• Outpatient facility care costs totaled $3,699, or 18% of a family of four's annual healthcare bill. Girod explains that the level of insurer control is improving under contractual discount arrangements, but still isn't on par with inpatient controls.
• Inpatient facility utilization or the number of inpatient days for a covered population in a year has remained unchanged for several years. However, the patients who are hospitalized tend to require more intensive and expensive services that have helped boost the cost of treatment contributing to a 7.6% increase in the average charge per day costs.
• Physician care costs reversed a four-year trend and increased by 5%. Girod says a number of things may have contributed to this cost bump, including evidence of some pushback by physicians in their contract negotiations with health plans.
• Hospital inpatient costs ($6,531) and physician costs ($6,647) each account for 32% of a family of four's total annual healthcare bill.
• Pharmacy costs continued their roller coaster ride of cost increases and exceeded $3,000 for the first time. The 7.3% increase is down slightly from 2011's 8%, but a significant increase over 2010's 6%. Pharmacy costs totaled $3,056 or 15% of the family's total annual healthcare bill. Girod says that while the shift to generics has helped slowed the growth in pharmacy costs, the expense of specialty drugs will have a growing impact on this cost trend.
• The cost of miscellaneous other services such as durable medical equipment, ambulance services and home health posted a 6.7% increase to $795.

View slideshow.

In addition to looking at costs on a nationwide basis, for the last five years the Index has looked at comparative healthcare costs in the same 14 cities across the country, including Chicago, Denver, and Los Angeles.

With a current annual cost of $24,965, Miami has topped the list for five years. Girod explains that Miami has a large number of healthcare practitioners and capacity helps drive the demand for healthcare services. Also, the practice of defensive medicine is more prevalent in the Miami area.

Phoenix was the least expensive with a cost of $18,365 for a family of four.

For the 2012 study, healthcare costs in 11 of the 14 cities exceeded $20,000 annually for a typical family of four. In 2011 only six of the 14 cities posted costs in excess of $20,000. While that could suggest an easing in the geographic differences in the cost of healthcare, Girod says a more likely explanation is that "the entire scale is shifting up, both at the bottom and the top, so we just ended up with more cities over that $20,000 threshold."

The report notes that so far the Patient Protection and Affordable Care Act has had "only a limited effect on total healthcare costs for the illustrative family of four."